“SELF EMPLOYED” TAX DEDUCTIONS

In an effort to bring you business information and useful ideas related to helping you reduce your annual taxes, I have assimilated a table of categories that represent the listing of a variety of business categories and their deductions that will help you keep track of the many items useful to your business. This listing may not have all deductions, so be sure to do your homework as you add to this list for upcoming years of business.

This article is long but was not intended to be read as an article, but more as a reference piece describing the many tax advantages you have as a Self Employed Stylist or Aesthetician. Use it to keep track of the many categories that impact you and the tax advantages needed to reduce your annual tax liability. These are all legal categories established by the government for use by the Self Employed. Take advantage of them and do not leave any money on the table that is rightfully yours.

Type

Deductible Expenses

Non-Deductible Expenses

Advertising (Line 8)

Any materials for marketing your business (e.g. flyers, signage, ads, branded promo items, events or trade shows) and the cost of developing those (e.g. agency or designer costs).

Office holiday parties, gifts (e.g. books) that aren’t branded (use “Other Expenses”)

Business Insurance (Line 15)

Insurance intended to protect your business (e.g. fire, theft, flood, property, malpractice, errors and omission, general liability, malpractice, workers’ compensation).

Health insurance, auto insurance (use “Car Expenses” or Add Mileage), disability insurance

Car Expenses (Line 9)

The business portion of your actual car expenses (e.g. gas, insurance, registration, repairs and maintenance) or public transit expenses (e.g. buses) if you use local transportation.

Expenses (other than Parking/Tolls) if you use the standard mileage rate (use Add Mileage)

Contract Labor (Line 11)

Any payments made to independent contractors (e.g. a contracted web developer).

Wages paid to employees (use “Wages”), lawyer/professional fees (use “Legal Services”)

Commissions and Fees (Line 10)

Commissions/fees paid to non employees to generate revenue (e.g. agent fees). Many companies (e.g. Uber, Airbnb) remove their cut before paying you, so don’t include those.

City license fees (use “Taxes/Licenses”), commissions paid to employees (use “Wages”)

Continuing Education

Cell phone

Capital Expenses

Charity

Clothing – Uniforms

Depreciation and Section 179 (Line 13)

Depreciation expense on business assets (e.g. computers, office equipment, tools, furniture, cars). Note: The IRS requires you to use Form 4562 to claim these deductions.

Car depreciation if using the standard mileage rate (use Add Mileage)

Depletion (Line 12)

If you’re in the business of mining natural resources (e.g. oil wells, natural gas, logging), you can write off the use of those resources. (We suggest getting an accountant if this applies.)

Gas for driving (use “Car Expenses” or Add Mileage), home/office utilities (use “Utilities”)

Dues – Subscriptions

Employee Benefit Programs (Line 14)

Costs related to benefits you provide your employees (e.g. health or life insurance, education assistance, accident or liability insurance).

Your own health/retirement benefits (deductible on Form 1040 Line 28 and 29)

Employee Wages (Line 26)

Wages paid to employees (e.g. salaries, commissions, bonuses).

Employee benefits (use “Employee Benefits”); payments to yourself

Equipment – material expenses

Education – Training

Equipment

Home Office Deduction (Line 30)

Expenses related to a home office (e.g. business portion of rent, utilities, repairs, insurance, and mortgage interest). You’ll need to fill out a Form 8829 unless you use the simplified method.

Expenses if you use the simplified method (it includes all home office expenses)

Health – Dental Insurance

Interest (mortgage) (Line 16a)

Interest paid on a mortgage for property used for business, other than your primary home. You may receive a Form 1098 from the lender if you pay mortgage interest during the year.

Interest on primary home (use “Home Office Deduction” and Form 8829 if used in business)

Interest (car, other) (Line 16b)

Other types of interest (e.g. credit cards, business lines of credit, interest on car payments). You can only write off the portion related to business, not the portion related to personal use.

Interest on personal loans, home office mortgage interest (use “Home Office Deduction”)

Insurance expenses

Meals / Entertainment (Line 24b)

Meals or entertainment that you had with a client and during which you engaged in business discussions, or those incurred while traveling on an out-of-town business trip.

Meals for yourself (e.g. on lunch breaks); dues for athletic clubs

Other Expenses (Line 27a)

Any other business expenses that is ordinary and necessary (e.g. education to improve skills for your job, banking fees, association dues, business gifts, industry magazines).

Expenses with their own separate categories, expenses that aren’t ordinary and necessary

Office Expenses (Line 18)

Office expenses (e.g. cleaning services for office, general office maintenance) that don’t have a separate category.

Home office costs (use “Home Office”), rent (use “Rent”), utilities (use “Utilities”)

Pension Plans (Line 19)

Contributions you make to your employees’ retirement plans (e.g. 401(k), Keogh plans, profit-sharing plans).

Contributions made to your own plan (use Form 1040 Line 28)

Legal / Professional Services (Line 17)

Professional fees related to your business (e.g. attorneys, tax preparers, accountants, other professionals).

Services provided by your employees (use “Employee Wages”)

Parking- Tolls

Rent – Lease Vehicles – Equipment

Rent – Lease Business property

Repairs – Maintenance

Rent or Lease (vehicles, equipment) (Line 20a)

Rent or lease payments on business property not owned by you (e.g. machines, equipment, vehicles).

Car lease payments if you use the standard mileage rate (use Add Mileage)

Rent or Lease (other business property) (Line 20b)

Rent or lease payments on items that aren’t vehicles or equipment (e.g. office or land rent), including any government taxes on those items.

Rent for home office (use “Home Office”), rent for trade show booths (use “Advertising”)

Repairs and Maintenance (Line 21)

Repairs or maintenance on business machines, equipment or offices (e.g. repainting office, fixing computer/laptop, replacing worn parts on equipment).

Car-related repairs (use “Car Expenses”), significant improvements (use “Depreciation”)

Supplies (Line 22)

Any supplies that you use and replace (e.g. cleaning supplies if you clean homes, office supplies like pens or printer ink, hot/cold bags if you do delivery).

Office decorations and some other office expenses (use “Office Expenses”)

Start Up Costs

Travel (Line 24a)

Travel costs related to business trips (e.g. lodging, airfare or rental cars, and local transportation). The travel must be overnight, away from your residence and primarily for business.

Personal costs while traveling (e.g. dinner with a friend), meals while traveling (use “Meals”)

Taxes/Licenses (Line 23)

Various business taxes (e.g. your share of FICA if you have employees) or licenses (e.g. state or local licenses, or licenses required for your business type).

Self-employment tax or income tax (see section below)

Utilities (Line 25)

Utilities related to your office (e.g. electric, gas, garbage, water).

Utilities for your house (use “Home Office”)

Categories in alphabetical order

Advertising and Operations Expenses

  • Think advertising expenses are just for the big companies? Think again! Small businesses need to use these available deductions to keep taxes low. Promoting your business on social media channels, and having business cards printed are both examples of common expenses that fall into the advertising category.

  • Operations expenses are common for small businesses in today’s digital arena. Hosting fees for a business website and the cost of other internet-based services (even paying for the internet itself) count as operations expenses.

Advertising, Promotion, Dues and Subscriptions

  • These might include the cost of advertising, websites, business cards, brochures, mailings, membership to business organization, professional journal subscriptions. They are deductible on various lines of Schedule C.

Business Bad Debts

  • In order to write of a bad business debt (which is one that stems from operating your business), you must be using the accrual method of accounting, which means you report your income as it is earned not as paid. Because most small companies, independent contractors and freelancers use the cash accounting method, this is not a very typical self-employment deduction–but useful to know nonetheless. Bad debts are deducted in Part V of Schedule C.

Business Travel

  • The IRS defines business travel expenses as “the ordinary and necessary expenses of traveling away from home for your business, profession, or job.” The purpose of the trip should be primarily business not personal. And expenses for family members traveling along are not deductible. Deductible travel expenses may include transportation, car, lodging, meals and incidental costs. Note that employees use Form 2106 to report business travel expenses; however, self-employed persons report it on Schedule C.

  • If you ever have to travel for business, make sure to keep track of your airfare, cab, Uber/Lyft, hotel, rental cars and any other expenses. Those costs are deductible if your travel is for a business purpose. For example, do you have to travel to pitch or present to a client? Count that trip and any associated costs as a tax deduction.

  • Certain entertainment expenses can be deducted as business expenses, although generally you can only deduct 50 percent of meals and entertainment.

  • If you travel for your business, which many independent contractors do, there are several deductions you can take advantage of. Things like air fare, the costs of operating your car, rental cars, taxi fare, food, and lodging are deductible as long as the purpose of the trip is business, and the costs of your trips are reasonable. Now, if you take your family along for a trip, over 50% of the time spent on the trip must be devoted to business, and you may only deduct costs associated with your business.

  • For a more detailed description on how to properly utilize your vehicle deduction, check out the FAQ on our blog: Deducting Your Automobile.

Cell phone

Do you use your cell phone for your contracting business as well as your own personal use? If so, then you can count a portion of your cell phone bill as a tax write off! You’ll have to make a close estimate as to what percent of your usage is personal versus business. But, for the amount that is business, apply that percentage to your phone bill and deduct it.

In the past, the IRS has been very stringent about the way a cell phones could be deducted, requiring you to track the minutes used for business purposes, but in 2011 they relaxed the rules. If you use your cell phone primarily for business purposes, you can deduct the cost of your cell phone.

Charitable Contributions

If you have a partnership, LLC or an s corporation, your business can make charitable contributions and have the deduction pass through to you, for you to claim on your individual tax return.

Child care expenses

Independent contractors with kids should know that they can use child and dependent care tax credit. The credit repays what you spend on childcare while working. This includes daycare, babysitters, summer day camp (not overnight), and more.

These types of expenses for children under 13 and disabled adults all qualify toward the maximum of $3,000 coverable per dependent. However, the tax filer will only recoup a maximum of 35 percent of that money.

Clothing or Uniforms

If a specific uniform is required by your occupation, your uniforms may be deducted. However, if you are a business man, you can’t go out and buy an expensive suit, simply because you plan on deducting it. Deductible clothing must be purchased for the specific purpose of using it for work. Health care workers, union workers, warehouse workers etc.

Continuing education

Contemplating taking a class or online course to improve your skills? If any education is needed to “maintain or improve skills required in your present work” then you can count it as a tax write off. An important caveat is that you can’t write off education expenses for learning a new line of work, only for improving and honing your current skill set.

Capital Expenses

If you purchase certain office equipment, considered to be business assets rather than supplies, you will need to calculate those items as capital expenses rather than straight business deductions. Equipment and property expenses are depreciated over a certain period of time, depending on the type of expenses involved. The IRS requires that you use either the General Depreciation System or the Alternative Depreciation System. Most business owners will use the GDS for expenses such as office furniture, restaurant equipment, and automobiles. Once you begin depreciating such an expense on your tax return, you must continue to use this method for writing off the expense until it is completely depreciated.

Entertaining Clients

When entertaining current or prospective clients, you can deduct meals and entertainment if it occurs in one of 2 situations. If it’s directly related to your business and business is discussed during (IE a catered lunch at your office), or if it’s associated with your business, taking place immediately before or after a business discussion. It is important to make a note of the specific business purpose on the receipt.

Equipment and material expenses

For the typical freelancer, equipment expenses include the hardware needed to finish a job. A computer is an obvious one, but less obvious could be the internet router and modem. You can also categorize the printer and paper as either equipment or material expenses.

Some independent contractors, like painters or others involved in the construction industry, have spent a lot of money buying supplies to keep the business running. These contractors will need to calculate the cost of goods sold to write off this inventory expense.

Equipment

  • Office equipment, tools or machinery are deducted on Line 13 of Schedule C, or the “Depreciation and Section 179” line. First, use Form 4562 to figure the depreciation. This is the form you use whether you are depreciating the equipment over multiple years or in one year using a Section 179 deduction.

  • Items like computers, printers, fax machines, copiers, and furniture for your business are all tax deductible. If your business is profitable, you can either take 100 percent of the deduction up front using section 179, or depreciate over the course of a few years, depending on the assets.

Employee Wages and Benefits and/or Payments to Contractors

  • You can deduct the cost of labor from independent contractors and employees on Schedule C.

  • However, these self-employment deductions are on separate lines: contract labor (Line 11) and salaries and wages (line 26). If you provide benefits to your employees, such as health insurance and life insurance, these too are deductible. Remember though your own health insurance premiums are deducted separately, as mentioned above.

Education & Training

  • As an independent contractor it’s important to improve on your skill set. Any education expenses can be deducted as long as they are related to your current business, or occupation. The expense has to be made to maintain or improve skills required by your current employment. For example ongoing education, seminars, classes etc. If the expense is to prepare you for a completely new field (e.g., going from being a LYFT driver to an IT consultant), it is not deductible.

Fees, Dues, Subscriptions

If you pay for any services, trade organizations, or publications required for your business then those are tax deductible. For example, if you have a certification that requires a fee to maintain, then you can count that as a write off.

There are many more 1099 deductions that you can count so make sure to double-check with a tax advisor to best understand the full extent of what you can write off based on your particular work. The IRS Schedule C instructions also provide a great resource for better understanding how to claim those deductions when doing your taxes. By far, the most important takeaway is to keep incredibly diligent records of your expenses that you plan on deducting. That diligence can save you a lot of money in the long run!

Health and Dental Insurance

Bottom line: health and dental insurance premiums are tax deductible. However, depending on how your business is structured, you will report the deduction differently. If you’re a sole proprietor, you will deduct the IRS Schedule C cost directly on your 1040. If you’re an S corp. owner, the cost of the health & dental insurance premiums should be paid through the business. It will be included on your W-2 at the end of the year, but you’ll be able to deduct it on your personal return. The costs for doctor or dentist visits should be paid through your personal account and will only be deductible at year end if you have expenses in excess of 10% of your AGI. Please note, you cannot deduct health insurance premiums if you receive the insurance through your spouse’s employer.

Home Office

Taking a home office deduction can be an important self-employment deduction, but there are a many IRS rules regarding this deduction.

In general, deductible home office expenses are related to the use of your home office–not equipment in the office–and are partially deductible in proportion to the amount of space the office takes up within the home and the amount of income earned there. To calculate the deduction for use of your home office, us Form 8829. The deductible amount is then entered on your Schedule C.

If running your independent business from home, you can potentially count a portion of your home expenses a tax write off. There are two important conditions however to using this deduction:

  1. Primary place of business: Your home must be where you conduct the majority of your independent business. If you only sometimes work at home out of convenience, then you can’t count it as a deduction.

  2. Exclusively used for work: The space that you use within your home must be exclusively meant for work. For example, a room that is only your home office or a desk in one room that is reserved only for running your independent business. Ultimately you will write off only a percentage of your home space.

Like deducting mileage, there are two options for deducting home office expenses: the Simplified Method or the Regular Method.

  • Simplified Method: You can multiply the square footage of your office by the IRS set rate of $5 per square foot for 2016, up to 300 square feet per year.

  • Regular Method: Track all costs related to your home residence, and determine the portion to allocate to your home office using Form 8829.

  • If you conduct business from an office space outside your home, the rent and utilities associated with that office space can be deducted on your taxes. If you operate your business from a home office, that office space must be used exclusively and regularly for your business in order to qualify as a business deduction. You can also deduct expenses for a home office if you use your home office for administrative duties such as billing clients or writing contracts, even if your business is actually conducted at client sites. Home office deductions are limited to the percentage of your home used for business. If your home office space is 10 percent of your home’s total square footage, you can deduct 10 percent of rent and utilities.

  • Business owners can claim a tax deduction on offices, even a home office, if it is for the regular and exclusive use of the business. It can be a whole room of the house or even a small portion of a garage, as long as that area is used exclusively for business.

  • You can claim the portion of your home’s square footage that you use to conduct your business. You may not include other parts of the house that get a large amount of shared traffic, like your living room or the kitchen table, as that blurs the line between home and business.

There is a common misconception that it’s a red flag to the IRS, but it’s not, as long as the space is devoted solely to your business and you follow the rules. With that said, the best way to utilize the home office deduction is to measure the total square feet of the space used for your office, and divide that by the square footage of your home. This is the percentage of your home related business expenses that you are able to claim (e.g., rent, mortgage interest, homeowners insurance, utilities, HOA fees, etc.)

Health Insurance Deduction (Line 29 of Form 1040)

You can deduct the costs of your personal health insurance premiums as a self-employed person as long as you meet certain criteria:

  • Your business is claiming a profit. If your business claims a loss for the tax year, you can’t claim this deduction.

  • You were not eligible to enroll in an employer’s health plan. This also includes your spouse’s plan. If you were eligible to enroll in one and chose not to, you cannot claim this deduction.

  • You can only claim premiums paid for the months when you were not eligible for an employer’s health plan.

Insurance expenses

Health insurance premiums are a big expense. Health insurance is required in the US due to the Affordable Care Act. So, independent contractors can use this deduction to help recoup some of the money spent on medical care premiums. However, tax deductions may not be greater than the income collected from the business (personal salary).

These tax deductions can include things like liability insurance or malpractice for those with riskier self-employment. You can also deduct car insurance, but only if the car is actually used for day-to-day business. Just make sure to keep a paper trail to show the IRS that you are playing fair. Much like travel expenses listed above, independent contractors must be able to prove that maintaining the car is a part of your business.

Even if most of it seems trivial, there are many available tax breaks for independent contractors. You can easily save receipts with scanners and smart phones, too. Keeping it organized is the best way to stay on top of taxes and away from IRS audits.

Interest

When using credit to finance business purchases, any interest charges are completely tax deductible. The same is true for a personal loan if the proceeds are used for your business. It should be noted that you need to keep good records displaying that the money was used for your business. Just as mortgage interest for real estate used for business is deductible, other types of interest are deductible as well. This includes financing costs and credit card interest. However, to calculate this interest it is best to have separate credit cards for your business expenses. This is deducted on Schedule C.

Meals and Entertainment

Meals and entertainment business expenses are usually 50 percent deductible. These expenses might include entertaining a client in your local area or meals while traveling on business.

Sorry readers, this part isn’t as juicy as we would like it to be (pun intended). But it certainly has enough rules and exceptions to feed an entire family reunion with tax jargon.

Entertainment of clients through meals is only classified as a tax deduction up to 50 percent. And it has to be associated with a trade or business, and take place directly before or after a substantial business discussion. In other words, it must have a clear business purpose and happen around when discussion took place. Treating a client for hot dogs at a baseball game where you “talk shop” won’t cut it.

Conventions and things done away from your home office are another way to deduct from your taxable earnings. However, you shouldn’t double-dip. If a contractor participates in a conference, they may not count it as both a travel expense and an advertising expense.

As this part is actually quite murky, especially for the self-employed, please consult this web page for additional information from the IRS regarding meal and entertainment expenses.

Ordinary and Necessary Expenses

The Internal Revenue Service defines legitimate expenses as those that are ordinary and necessary for your business. An ordinary expense is one that is line with the nature of your business. Basically, most expenses that you incur in the normal course of doing business can be listed as business deductions. For example, you can deduct the costs of advertising, including web hosting fees for an Internet site, as well as educational fees and the costs of subscriptions to newspapers or magazines if they relate directly to your business activities.

Other Insurance

This would include business, property, liability, malpractice, worker’s comp insurance, etc. If you have a home office, a portion of your homeowner’s insurance is deductible as an indirect expense on Form 8829. If you use a personal vehicle for business, you may deduct a portion of auto insurance, if you are figuring actual expenses rather than taking the standard mileage. These are taken on Schedule C, except for the homeowner’s insurance, which calculated on Form 8829 as mentioned above.

Parking

This is another expense that can add up for certain types of contract work. If you regularly pay for parking, keep those receipts as well. These too can count as a tax write off.

Professional, Legal, and Financial Services

Any expense paid to a legal or tax professional for advice and services related to your business are fully tax deductible during the calendar year paid.

Professional Services

Legal fees and tax preparation costs for your business are deductible on Schedule C. However, the cost of having your personal income tax prepared is not deductible, so have your accountant itemize his or her fees.

Postage

Postage is one deduction that is often overlooked. But if you find yourself shipping and mailing for business often, keep track of these expenses as well.

Rent and Mortgage Interest

  • If you rent office space or own facilities that you use in your business, rent and mortgage interest are deductible on Schedule C. However, this self-employment deduction is limited to space outside your home. Home office deductions of rent and mortgage interests, as mentioned above, are only partially deductible and calculated on Form 8829.

Repairs and Maintenance

  • This includes the cost of actual repairs as well as service contracts for business equipment and your office. These are taken on Schedule C. Remember though, if you did the work yourself on the repair, you cannot deduct the labor cost–only materials. Deductions for repairs to a home office are calculated on Form 8829. If a repair is made on another part of your home that affects your home office (i.e., the furnace), it is likely an indirect expense and only partially deductible.

Retirement Plans

  • When you are employed, contributions (within the established limits) to retirement plans reduce your taxable income on your 1040, even if you don’t itemize deductions. The same is true for the self-employed. You can establish individual retirement accounts (IRA), such as SEP or SIMPLE IRAs, for yourself and/or employees. If you establish a new retirement plan for employees, you may be eligible for a tax credit for the first three years. (See IRS Publication 560 for details.) For yourself (but not your employees), you may use a traditional IRA to make contributions.

Self-Employed Health Insurance Premiums

In order to deduct self-employment health insurance premiums for yourself and your family, you must have a net profit on your Schedule C, and you must not be eligible for coverage on another plan (e.g., your spouses’ plan). Other restrictions for self-employed health insurance deduction also apply. This deduction is taken on your 1040.

If you pay for your own health insurance plan and your spouse doesn’t benefit from an employer-subsidized health insurance plan, then you could count those payments as a tax write off on your individual income taxes. If your independent business earned a profit for the year, you can report this on your 1040 form not your Schedule C (where you’ll report most deductions).

Self-Employed Contributions Act (SECA) Tax Deduction (Line 27 on Form 1040)

If you’re a traditional employee, your Federal Insurance Contributions Act tax burden, known as FICA, is split between you and your employer. If you’re self-employed, you’re responsible for paying your own share of those Social Security and Medicare contributions, collectively known as SECA.

But fear not! You too can be taxed just like your traditionally employed peers by claiming an SECA deduction on Line 27 of Form 1040. You will compute this amount as part of Schedule SE.

While it may seem like a frustrating and time-consuming process, tracking your expenses and claiming them as deductions can save you a good amount of money when it comes time to file taxes. You can also save time and relieve some stress by using financial software like Quick Books Self Employed to track expenses throughout the year and automatically classify them as deductions, but it’s also smart to keep this list handy to ensure you’re on the right track.

Startup Costs

The expenses associated with starting your business are called startup costs, of which you can deduct $5,000 in the first year you are doing business. Any remainder of those expenses must be deducted in equal parts over the course of 15 years. Once your business is up and running, expenses on things like advertising, office supplies, and repairs can be deducted.

Supplies

The supplies you use to run your business are deductible on various lines of Schedule C.

Consumable office supplies like toner, paper, envelopes, etc., are deducted in Part II of Schedule C. (Equipment, such as computers, cameras, printers, calculators, etc., are deducted separately. See below.) Be sure to keep these items separate from those you have for personal use and keep your receipts organized.

These types of incidental supplies are deducted separately from the raw materials you use if your business is one that makes and sells goods. See Part III of Schedule C for deducting the cost of raw materials and merchandise.

Normal supplies necessary for conducting business are eligible to be deducted as business expenses. As an independent contractor, you will need business cards and possibly letterhead, invoice paper, envelopes, and postage. You may print promotional materials or contracts for doing business with clients. If you sell a product, that product is not considered a regular office supply deduction. You will need to calculate the cost of goods sold in order to write off the expenses of your inventory.

Any supplies that you purchase to conduct your independent business is deductible. If you’re a cleaner you can deduct cleaning supplies. Other examples are office supplies, food for passengers in your car, new messenger bags for couriers — if it’s used for you to get the job done then it’s deductible. If you rented or leased any equipment for your business, that’s a write off as well.

The IRS Publication 1070 provides additional information about this deduction in Chapter 12.

Transportation and Auto Expenses

  • Commuting costs are not deductible; however, if your home office is your principal place of work traveling to other sites where you do business may be deductible. When inputting automobile expenses (Schedule C, Line 9) you can either take the standard mileage deductions or you can calculate actual expenses and depreciation and multiply that by your business use percentage. Either way you need to keep accurate records of your business vehicle use. Parking fees and tolls are added to these figures before entering them on Line 9. Depending on your particular situation you may need to file a Form 4562.

  • Of all deductions available to contractors, mileage and car expenses can provide one of the most sizable write offs. You’re allowed to write off any driving while working, driving between gigs, going to meet clients, or driving out of town for business. In 2016, the standard mileage rate allows you to write 54 cents off of every mile you drive for your business.

  • There are two methods for tracking and deducting mileage: the actual method and the standard mileage rate. The standard mileage rate takes into account gas, insurance, maintenance and depreciation and is much easier to keep track of and claim. In order to deduct it, keep track of your business miles and multiply the total mileage amount by .54 (the 2016 standard mileage rate). If you use this deduction, you can’t additionally write off insurance or gas because it’s already included in the rate.

  • Make sure you’re keeping adequate records of your mileage because this is also one of the most often audited expenses for contractors. The IRS recommends spending a few minutes a day (or whenever you drive for business) recording your mileage in a driving log. You will need to log the date, miles, business purpose, plus the starting and ending odometer amount.

  • When you use your personal car for business travel, you have a choice of deducting a percentage of the actual car expenses or taking the standard mileage rate as a deduction. The standard IRS rate was 53.5 cents per mile in 2017. Deducting  a percentage of business use of your car works much like deducting home office expenses. You will calculate the percentage of business use for your car and then you can deduct that percentage of actual expenses, such as insurance, gas, oil, and maintenance costs.

  • Let’s get something out of the way. You cannot deduct expenses from commuting to or from work.

  • However, the IRS gives self-employed people two ways of tracking and deducting vehicle expenses. All your vehicle costs (gas, repairs, maintenance, etc.), or your business miles times $0.54 for 2016 (IRS mileage rate). Either way, make sure to keep track of all miles and receipts.

Taxes

Just as you may deduct your employer portion of Medicare and Social Security for yourself, you can deduct these taxes for your employees. However, unlike your own taxes, employees’ payroll taxes are deducted on Schedule C. Additionally you can deduct sales tax paid as the seller of goods, unemployment taxes, and fees for licenses and permits as well. Property taxes on real estate used exclusively for business purposes are deductible. The property tax on a home in which you have an eligible home office is partially deductible.

Half of Your Self-Employment Tax

When employed, your employer pays half your Medicare and Social Security taxes, and you pay the other half through payroll taxes. When you are self-employed, you must pay all of it, through self-employment tax. However, as your own employer, you are entitled to deduct half of it.

Deduction or not, though, self-employment tax can be a big cost for an independent contractor. Knowing how self employment tax rate is important when considering employment versus contracting. Also remember that Schedule C deductions reduce your business’s net income and therefore self-employment tax too.

To calculate self-employment tax, use Form SE, but it is paid and half is deducted on your 1040.

Utilities, Internet and Phones Costs

  • If you own or rent office space outside your home, utilities are fully deductible on Schedule C. Again for home offices, these are mostly considered indirect expenses and are only partially deductible. Utilities might include gas, electric and security systems.

  • Phones used for business are legitimate self-employment deductions. This includes cell phones for business use and second phone lines in your home office. However, you cannot deduct the base cost of your home phone line, though you can deduct the cost of business calls made on it. These are deductible on Schedule C.

Thank you for your support. As a Professional Self Employed Stylist or Esthetician, you have many tax deductions that should be taken to reduce your tax liability. If you are not yet in one of the approved government retirement plans such as IRA’s, 401(K)’s, SEP IRA’s, Roth IRA’S and Roth 401(k)’s, please contact me and allow me to steer you in the right direction. Personally I use the SEP IRA, as it allows me to deduct up to 25% of my contributions from income, which can an immediate impact on your retirement plan and tax liabilities.

The Author, James Hobart, has a sixty year career behind him, ten in the U.S. Military and forty nine in the Professional Beauty Industry as an industry executive at every level, with twenty years as a Certified Hypnotherapist. His insight and experience has helped many companies and individuals with their growth and development over the years. His books, Happiness Is Your Birthright, and Salon / Spa Retail – The Lost Revenue Stream, and his Blog: http://jameshobartmarketing.com, support his philosophy on life and are practical sources to create positive change throughout one’s life.

His support of the global Wellness movement and its eight dimensional model is defined by a focus on three income streams, Financial Consulting with a world class financial services company, https://wfgconnects.com/jameshobart  a Certified Hypnotherapist with a practice in Ventura, CA and a Wellness Coach with the largest Consumer Direct Wellness Marketing Company in North America. More information is available at http://makegreengogreen.com/jameshobart or http://melaleuca.com/jhobart

 

 

 

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